Surrogate's Court, Dutchess County, April 8, 2022

B.L., guardian pro se.

By decree dated February 24, 2022, this court appointed B.L. and S.A. as the guardians of the property of their infant daughter, D.K.L. The court granted this application pursuant to article 17 of the Surrogate's Court Procedure Act.

SCPA 1708 (2) states that the court may dispense with the filing of a bond when appointing a property guardian, subject to four conditions: (1) the court must direct the guardian to "collect and receive the moneys and other property of the infant as directed by order"; (2) any moneys collected must be "deposited in the name of the guardian" in a bank that has been designated by court order; (3) any moneys deposited in the guardianship account must not exceed the maximum insurable amount; and (4) no moneys deposited in the guardianship account shall be withdrawn or removed without an order of the court.

The February 24, 2022 decree dispensed with the requirement of a bond, and imposed the mandatory SCPA 1708 conditions. The decree also designated an authorized bank to jointly hold D.K.L.'s property, and ordered the guardians to file annual accountings pursuant to SCPA 1719. Upon entry of the decree, the Surrogate's Court Chief Clerk issued letters of guardianship of the property to B.L. and S.A.

The infant's property includes an inheritance from her paternal grandmother, C.W., who died on August 11, 2021. That inheritance consists of a 100% interest in an annuity account managed by a life insurance company (LIC).

The guardians have advised the court that LIC has delivered a check paying over the full balance of the annuity account. However, the check has been made payable to B.L. as "Custodian of minor D.K.L.," rather than in his capacity as guardian.

The guardians have informed the court that the bank will not negotiate the check because of the incorrect "custodian" designation. The guardians have also advised the court that the bank will only accept a check for deposit in the court-mandated guardianship account if it is made payable to B.L. "as guardian of D.K.L."

{**75 Misc 3d at 257}Under New York law, there are a number of ways that a transfer can be made to a minor. One option is to "pay it to the guardian of the child's property, who then must comply with the rather onerous requirements for investing and accounting required by SCPA Article 17." (Margaret Valentine Turano, Practice Commentaries, McKinney's Cons Laws of NY, EPTL art 7, part 6, Uniform Transfers to Minors Act.) Another option that is sometimes available is to make the transfer to a "custodian" pursuant to the Uniform Transfers to Minors Act (UTMA). However, transfers that are deposited in a custodial account are subject to far less rigorous oversight and control than deposits to a guardianship account.

UTMA draws a clear distinction between a "custodian" and a "guardian." (See EPTL 7-6.1 [f], [h].) The intrinsic differences between these two fiduciary roles include: (1) the method of appointment, and (2) the level of active court oversight after that appointment is made. An understanding of these differences reveals that "custodian" and "guardian" are not interchangeable terms, and underscores the importance of using the correct terminology when effecting a transfer of funds that will be held for the child's benefit.

A guardian is appointed by the court after obtaining a background check through the NYS Office of Children and Family Services, and after making a considered judicial determination that the child's best interests will be served by appointing a guardian (SCPA 1706, 1707). In making this determination, the court is not limited to appointing a parent of the child or to appointing the person nominated in the guardianship petition, and may instead make the appointment that serves the child's best interest. (Id.)

Once this appointment is made, the guardian must file a detailed annual accounting with the court (SCPA 1719). While those accounting requirements are relaxed slightly when the infant's property is held jointly with a bank designated by the court, the guardian must still file—at a minimum—an annual report of all deposits and withdrawals from the guardianship account. And even then, the court may require the guardian to file a full annual accounting. Finally, upon the expiration of the guardian's term of office, the guardian must also file a final accounting with the court pursuant to article 22 of the SCPA (see Margaret Valentine Turano, 2011 Practice Commentaries, McKinney's Cons Laws of NY, SCPA 1719).

By comparison, a custodian is nominated by the person who seeks to make a transfer pursuant to UTMA (EPTL 7-6.3). Although{**75 Misc 3d at 258} the statute places some limits on who may serve as the custodian [*3]for various types of property, no independent judicial review or approval of the nominated custodian is required (EPTL 7-6.9). And while a custodian can be compelled to account if certain parties (including the minor's guardian) file a petition with the court seeking that relief, the custodian is not required to file annual accounts or a final account absent such a petition (EPTL 7-6.9).

In apparent recognition of the unique safeguards that a guardianship provides, UTMA states that, when a court-appointed guardian exists, a life insurance company must transfer the child's interest in an annuity to the guardian (EPTL 7-6.7 [a]). UTMA further states that the insurance company may only transfer those annuity funds to a nominated custodian if the child does not have a guardian (see Margaret Valentine Turano, Practice Commentaries, McKinney's Cons Laws of NY, EPTL 7-6.7). This restriction on the insurance company's discretion signals a legislative determination that valuable assets such as annuities should be transferred to a court-appointed guardian when that is an available option, so that the child will receive the benefit and protection of the investing and accounting requirements imposed on an article 17 guardian.

Here, the annuity account is a guardianship asset. As such, it is protected by the rigorous oversight and control mechanisms that attach to an article 17 guardianship and which are lacking for an UTMA account. Because the annuity is a guardianship asset, LIC does not have the discretion to transfer it to a custodian, and must instead transfer it to D.K.L.'s court-appointed guardian (EPTL 7-6.7). Under these circumstances, it is essential that the check transferring these funds designate B.L. as the "Guardian of D.K.L.," so that it may be "deposited in the name of the guardian" as required by SCPA 1708 (2) (a). It is therefore ordered that LIC shall cancel the annuity check that was made payable to B.L., "as Custodian of D.K.L.," and shall replace it with an annuity check made payable to B.L., "as Guardian of D.K.L."; and it is further ordered that LIC shall bear any and all costs or fees associated with taking these ministerial steps, including any bank fees or charges. No portion of any such costs or fees shall be charged to or deducted from the annuity; and it is further ordered that upon receipt of this order from the guardian, LIC shall make every effort to promptly and fully comply with the terms of this order.